A Stock Is Trading at $70

question 9

Multiple Choice

A stock is trading at $70. A one-month at-the-money call option on the stock is priced at $0.10. The risk free rate of interest is 2%. Which of the following statements is most accurate?

• A) There is no arbitrage opportunity here.
• B) A risk-less arbitrage strategy is to buy the call, short the stock and lend the present value of the strike for one month.
• C) A risk-less arbitrage strategy is to short the call, buy the stock and borrow the present value of the strike for one month.
• D) There is not enough information to decide whether or not there is an arbitrage.

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Definitions:

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